Canada needs freer dairy trade

The economic damage of supply management to Canadian families is significant. But we failed to get rid of it in recent trade talks

The new United States-Mexico-Canada Agreement (USMCA) is a mixed bag for Canadians.

The bright side is that it’s certainly better than having no trade agreement, and is more desirable than the massive uncertainty that comes with not knowing whether an agreement will be reached.

On the down side, trade between Canada and the United States is less free with USMCA than with the North American Free Trade Agreement (NAFTA).

As economist William Watson noted in the Financial Post, on balance, “USMCA looks to be inferior to NAFTA because it does more managing of markets, especially big ones like autos, steel and aluminum, that under NAFTA were by and large free.”

Despite increased restrictions on trade overall, one notable area in which trade was actually made freer – although only by a little – was the dairy sector. The new agreement gives Canadian consumers slightly more access to American dairy producers. Canadian families will benefit from this trade liberalization.

However, even this small victory is bundled with bad news.

The first bit of bad news is that Canadian politicians of all stripes (except for member of Parliament Maxime Bernier, who defected from the Conservatives in part over disagreement on trade issues), including many politicians at the provincial level, remain deeply committed to protectionism in the dairy sector.

Canadian politicians cast this beneficial move towards a slightly freer market in dairy as an economic loss, a concession that was needed to achieve a trade deal. Politicians claim to support free trade but oppose Canadian consumers having more access to goods produced abroad. Clearly this is illogical and intellectually inconsistent.

The second downside is that while marginally freer trade in the dairy sector is a victory for Canadians, it’s also a missed opportunity. Given how frequently the U.S. government complained about Canada’s dairy protectionism, the trade negotiations were an excellent opportunity to abolish the supply management system under which the Canadian dairy and poultry industries operate.

The economic damage of supply management to Canadian families is significant. Studies generally find that the system costs the average Canadian household about $400 annually. Poor families are least able to financially absorb the supply management burden.

An analysis two years ago from the Montreal Economic Institute found that, for the poorest 20 per cent of Canadian households, the cost of supply management represented 2.29 per cent of household income and had the effect of pushing between 148,396 and 189,278 Canadians below the poverty line.

Yet federal politicians remain united on the desirability of preserving this system.

Thirdly, the benefits to Canadians of slightly freer trade in the dairy sector will be somewhat eroded because the federal Liberal government and the Opposition Conservatives are intent on doling out tax dollars as corporate welfare to domestic dairy farmers to compensate them for the marginal loss in market share they’ll experience.

It’s apparently not enough that Canadian families have been forced to pay hundreds of dollars extra each year to domestic farmers, who artificially inflate grocery prices by preventing Americans from serving the Canadian market. Now Canadians have to pay the dairy farmers, through higher taxes, in order to achieve just slightly freer trade in the dairy sector.

If Canada’s federal politicians are really the free traders they claim to be, they should abolish the unfair supply management system and barriers to trade in other sectors of the economy.

The new trade deal with the United States and Mexico makes some progress on the dairy file and is better than no deal at all, but it leaves much to be desired.